Bigger Than Tesla

China’s BYD has just overtaken Tesla as the world’s biggest EV automaker. What’s next? Alice Han on the competitive advantages and geopolitical risks for an emerging global giant. Recently at The Signal: Vali Nasr on [the Islamic Republic’s strategy to come away as the Gaza war’s biggest winners](. Today: China’s BYD has just overtaken Tesla as the world’s biggest electric-vehicle maker. What’s next? Alice Han on the competitive advantages and geopolitical risks for an emerging global giant. Also: Nicholas Kumleben on the tensions between Beijing and the West over the control of key elements for producing EVs, renewable-energy technologies, and military equipment. Build Your Dreams Why Kei In the last quarter of 2023, for the first time ever, the Chinese automaker BYD sold more electric vehicles worldwide than Tesla—526,000 to Tesla’s 484,000. Founded in 1995 as a Shenzhen-based battery producer, BYD later turned to auto manufacturing—and its initials into the marketing slogan Build Your Dreams. The company’s EVs and hybrids typically have a shorter all-electric range than Western models. But they use iron-phosphate batteries, which cost far less to produce than Tesla’s industry-standard lithium-ion cells, making BYD’s cars—from hatchbacks to SUVs and minivans—mostly cheaper, though they do have a luxury model with a base price of around US$140,000. Recently, BYD has seen astonishing growth. For each of the past two years, its sales increased by about a million cars—a leap unseen since 1946, when U.S. automakers resumed auto manufacturing after years of producing war materiel. Over the last three years, total Chinese EV exports have climbed by more than 850 percent, with most units going to Europe. And last year, the People’s Republic of China passed Japan as the world’s leader in automobile exports—with EVs making up around 40 percent of sales. How did BYD pull this off—and what does it mean for the EV market globally? Alice Han is the China director at the New York–based consulting firm Greenmantle, where she leads research on the country’s economy, technology, and politics. Han says the rise of BYD has been driven mostly by the Chinese domestic market, and about 80 percent of its sales are still there. But the company continues to expand internationally, with plans to build factories in Asia, Europe, and South America. The critical question facing BYD, though—and Chinese high-tech exports as a whole—is how their growth plans fit into a [new era of global trade]( heavy with import tariffs and national-security concerns about China. The former U.S. president Donald Trump imposed a 25 percent tariff on Chinese car imports in 2018, and the current president, Joe Biden, has kept the tariff in place since, as Washington moves to [cut its reliance on Chinese supply chains](. Meanwhile, Han says, BYD’s key target market is now Europe—and so, much of the company’s future will depend on how open the European Union and its member states are willing to keep their markets. Michael Bluhm: How did BYD beat out Tesla? Advertisement Alice Han: There’s a macro and micro story to this. The macro story goes back to the early 2000s—to Wan Gang, known in China as the father of EVs. In the 1990s, Wan worked at Audi in Germany before returning home to China, where he eventually served, from 2007 to 2018, as Beijing’s minister of science and technology. Even then, Wan was advancing the view that China would never catch up to the West in building combustion-engine vehicles—and so, that China had to leapfrog the West into new auto technologies. Particularly given all of China’s smog and pollution problems, Wan decided this should be electric vehicles. So by 2009, under his direction, the Chinese government began spurring heavily subsidized EV production. Some estimates suggest that, from that year up to 2022, Beijing gave about $28 billion to BYD and other EV automakers. The actual extent of state support might be even higher, because local governments traditionally offer breaks to Chinese companies on real-estate prices and taxes. Another part of the macro story is that, over those same years, the Chinese economy shifted in some very significant ways. In 2012, Xi Jinping became president and started looking to transition the economy away from what he considered inefficient and “dirty” growth—largely meaning infrastructure and industrial development. With this, China began looking to dominate globally in new energy technologies, not least renewable energy. Which is part of what helped BYD gain economies of scale within the Chinese and potentially global markets. The micro story is that BYD has been very smart from the get-go about vertically integrating its supply chain—meaning, establishing full control over it. BYD is one of the few electric-vehicle companies to have done this, from the [critical minerals for manufacturing batteries and semiconductor chips]( to the batteries, and to the infrastructure used to charge the vehicles. All of these are competitive advantages over Tesla. So BYD has a high degree of price control, and overall control, of its supply-chain inputs and outputs. This makes it exceptional. P.L. More from Alice Han at The Signal: “The Chinese EV market is becoming saturated, so BYD is looking to other markets. It’s less keen on the U.S., on account of American protectionist policies, which will likely get only stronger in the coming years. But the company is looking at Latin America and, closer to home, Southeast Asia. Above all though, it’s looking at Europe—because Europe is a much more developed region than these others, with much greater purchasing power. … The big question for them is what Europe’s reaction will look like.” “Europe and the U.S. have major concerns about China running a massive, continued trade surplus—continually exporting so much more than it imports—and in particular, about China’s exports of high-end technologies, with EVs being just one big example. Beyond the issue of subsidies, the [larger question is about protectionism]( in countries that, for a long time, have also run trade surpluses and benefited from automobile manufacturing—Germany, especially—who are now very concerned about the next generation of auto manufacturing being dominated by China.” “There are many good Chinese EVs that middle-class people can afford. You might be surprised by their quality, user-friendly interfaces, and price. Never has the Chinese automobile industry been so competitive in all three of these ways. The big wake-up call for the West was at the Auto Shanghai exhibition after Covid, when European automakers tried Chinese EVs for the first time—and realized they’d completely underestimated China’s ability to catch up to them, even overtake them.” [Members can read the full interview here]( Enjoy The Signal? Send this newsletter along to a friend who’s as curious about the world as you are. Someone send it to you? Sign up [here](. FROM THE FILES Going Underground The success of BYD and China’s EV industry comes in part from their control over their supply chains—in particular, their control over the supply of the minerals they need to make their batteries and semiconductor chips. Often referred to as critical minerals, these include lithium, cobalt, and nickel. And they’re essential for producing not only electric vehicles but other consumer technologies, like cell phones, along with renewable-energy technologies and military equipment. As such, critical minerals represent a key area of strategic competition between the U.S. and China. Last November, Nicholas Kumleben explored [the tensions between China and the West over the control of these minerals](—an area where Beijing holds a distinct advantage over Washington and its allies. To access our full articles, full archive, and to support The Signal as we build a new approach to current affairs, become a member. 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